German manufacturers plan new investment cycle in Brazil

Valor International

German companies with operations in Brazil have started a new investment cycle, based on projections that from now on nothing will hurt the recovery of Latin America's biggest economy, says Andreas Renschler, president of the Latin America Committee of the German Industry (LADW), a member of the global board of Volkswagen and CEO of holding company Volkswagen Truck & Bus. Andreas Renschler Germany, one of the most important industrial hubs in the world and the manufacturing leader of Europe, is trying to deepen some partnerships in the wake of US President Donald Trump's protectionist threats, and Brazil is considered a key market for German manufacturers. Brazil hosts 1,300 German companies, which generate over 250,000 jobs and invest more than $25 billion. Yet, during the worst Brazilian recession in recent memory, German businesses have suffered double-digit drops. “They’ve felt the recession of the last few years very intensely,” says Mr. Renschler, who is the spokesman of the German industry for Latin America. “Currently we still face the huge challenge of keeping our companies on the growth path, but we are doing it with full confidence since we want to see even more engagement of German companies in Brazil,” the executive says. He says that “giving up on Brazil was never an option for German manufacturers.” The situation now is more stable than six months ago, although he is aware the Brazilian economy will not recovery “overnight and we still need patience.” Above all, there is the notion the “worst is over,” which helps explain why a new German investment cycle in Brazil “is not just a vision but a reality.” Mr. Renschler exemplified that several new projects became public in the last few months and confirms the trend from his own experience. “Volkswagen Caminhões e Ônibus, a brand of the Volkswagen Truck & Bus group, announced the biggest investment package in the company's history, aiming to spend about R$1.5 billion in Brazil over the next five years,” he says. Brazil is seen by Germany industries as key amid the uncertainties in Europe and around the world. “One out of every four jobs in Germany is linked to exports, and for manufacturers is one out of every two,” Mr. Renschler says. “We, the German, cannot let go of strong and loyal trade partners in the global market, and Brazil is high on that list.” German Chancellor Angela Merkel has invited President Michel Temer to visit Germany in the first half. Mr. Temer could show Germany and its manufacturing industry that “he is focused on continuing structural reforms,” the kind of message Mr. Renschler believes could help increase confidence in Brazil. German industries believe concluding negotiations for a free-trade deal between the European Union and Mercosur could also provide Brazil-Germany bilateral relations with a completely new scope. Mr. Renschler notices a new dynamic in negotiations, “exactly what had been missing in the last few years.” Because of that, he believes a deal could be reached in the near future. “What we need is mutual access to goods and services markets and to public procurement.” German industries also see “with much hope” Operation Car Wash, the probe into corruption with Petrobras contracts. Mr. Renschler says the issue is receiving the appropriate priority and that a new business culture is rising in Brazil, “which will be good not only for German companies but for Brazil as a whole.” The positive German stance regarding Brazil contrasts with ongoing tensions with the new US administration and the protectionist wave signaled by Mr. Trump. The executive says the US are the most important trade partner of Germany. Any change in US trade policies will 37 affect other global actors including Germany and Europe. “But we shouldn't panic,” he says.

Mr. Trump demands that companies produce in the US. Asked about any risks that production from South America could be shifted to the US, the German executive prefers to see exactly what Washington will do, as well as how and when. “Factories installed in Brazil, for instance, are there mainly for the South American market,” he says. Some analysts say that tensions between the US and Mexico could create challenges for Mexican automakers to keep up exports to the US. The Mexicans probably will also buy less Brazilian cars. Mr. Renschler says that in case this scenario really materializes, there would be inevitable consequence since Mexico is a strategic market for Brazilian-made cars. The executive says that regardless of the discussions, the Brazilian industry will benefit from strengthening its export capacity and winning more consumer markets. After growing 1.7% last year, the Germany economy is forecast to expand around 1.5% in 2017, but “there is no reason to relax,” he says. The executive is aware of the international pressure on Germany, starting with Washington, to increase domestic demand and help rebalance the global economy. He argues that its gigantic surplus in current accounts is mainly because Germany exports a lot, but the country also is the third largest importer in the world after the US and China. Imports represent about 40% of German GDP.

Expectations indicate the eurozone will grow about 1.5%. For Mr. Renschler, the priority is to strengthen the European Union and ensure it has plenty of options amid an uncertain international scenario.